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It’s Full Speed Ahead For The World’s Most Exciting Oil Play

Baystreet - Wed Jan 26, 5:17AM CST
Still hounded by short-sellers precisely because of the possible sheer magnitude of the discovery, our pick for the world’s most exciting onshore play in recent history—and possibly the last we will see—has just updated shareholders on the prospects for its next 3-6-well drill campaign in Namibia.

Reconnaissance Energy Africa (ReconAfrica) (TSXV:RECO, OTC:RECAF) is nearly finished with the initial interpretation of its massive 450 kilometers of 2D seismic data for Namibia’s Kavango Basin …

And the company says it’s already delineated a “diverse group of high-quality prospects” for the drill campaign.

In a January 20 press release, RECO also said it had appointed two new directors to its board, Craig Steinke as Executive Chairman and Dr. Joseph Davis.

In the meantime, RECO has designed another huge 500-kilometer 2D seismic acquisition program, which has been submitted to the local authorities for approval and is slated to start by the end of February.

As soon as all permitting is approved by the Namibian government we’ll see the detailed drilling schedule for the first half of this year. We believe the first well will be spudded in Q1.

And RECO’s ambitious ESG project elements are moving full speed ahead, with the company’s ~$1 million COVID vaccine support program for the Namibian government so far ensuring over 8,000 first-dose vaccinations, over 1,200 second-dose vaccinations and 100 boosters for hard-to-reach, remote villages and settlements in Kavango East and Kavango West. So far, a total of 52 of a planned 81 villages have seen COVID vaccination outreach.

From here on out, we expect the Q1 news flow to gain significant momentum as the anticipated seismic interpretation delineates the drilling locations for an onshore oil play that has potential to put Namibia on the global conventional hydrocarbons map.

Active Petroleum System Already Identified

Excitement has continued to build, attracting short-sellers and questionable tactics, since RECO (TSXV:RECO, OTC:RECAF) announced in August that together with its partner, Namibian state-run NAMCOR, that lab tests confirmed evidence of an active petroleum system, while results from a second stratigraphic test well encountered 350 meters of hydrocarbon showings.

Those results had executives noting that they drilled into a very thick zone of potential production or reservoir. All on the maiden stratigraphic test drills.

The first well (6-2) encountered over 250 meters of hydrocarbon shows after drilling to a depth of 2,294 meters. The second test well returned 350 meters of hydrocarbon shows after drilling to a depth of 2,780 meters.

Doug Milham, CEO of Horizon Well Logging Inc—the company that did the sample logging data and analysis, described the results as indicative of an exploration play with “world-class potential”.

Likewise, industry recognized Polaris conducted the 450-kilometer 2D seismic program for RECO, the results of which will help determine where the upcoming drill campaign that we’ve been waiting for.

The 8.5-Million-Acre Play of a Lifetime?

The size of this play is almost unimaginable.

RECO (TSXV:RECO, OTC:RECAF) has the rights to 6.3 million acres in Namibia’s portion of the giant Kavango Basin and another 2.2 million acres in neighboring Botswana.

It’s a play that has had the likes of Wood Mackenzie—a well-known analyst for natural resources—compare the potential to the Permian basin in Texas.

And it’s a play that world-class geologist Dan Jarvie has estimated could have potential for billions of barrels of oil.

We think the sheer size and potential here demands patience, and early-in investors are probably in this for the long haul. When billions of barrels is at stake in what could be a once-in-a-lifetime exploration effort, it’s important to do things right, and by the book, including a lineup of ESG efforts that ensure this is beneficial for Namibia.

Steinke has called it “transformational” for Namibia, a country that “suffers from severe energy poverty. Their main goal in Vision 2030 is to industrialize their country and pull their people out of poverty. You have to remember they don’t have a significant amount of indigenous energy. For example, Namibia imports 60% of their electricity from South Africa, so how can they industrialize their country? If you have to import energy to establish industries, but at higher costs, then how do you compete? You can’t?”

So far, despite misinformation to the contrary that has been debunked by the Namibian government itself, we think ReconAfrica (TSXV:RECO, OTC:RECAF) has made all the right moves to ensure the biggest conventional onshore oil exploration in decades is de-risked for everyone.

Exxon Mobil (NYSE:XOM) is one of the largest oil and gas companies in the world. It was founded by John D. Rockefeller Sr. in 1870, with a goal to produce kerosene for lamps, which led to it becoming an integrated oil company that would go on to be one of the most powerful corporations ever built.

Recently, Exxon put up for sale natural gas assets in the Barnett Shale in Texas, Reuters has reported, citing a confirmation of the news by the company.

The assets include 2,700 wells spread across 182,000 acres, according to the report. So far, no buyer has been identified, and no agreements have been reached on the sale, a spokeswoman for the company said.

Aside from the considerable drilling success and exploration upside to be unlocked in the Stabroek Block, operations are proving to be highly profitable. And it hasn’t stopped there. Exxon is also developing the Payara oilfield in the Stabroek Block, located to the north of Liza one at a water depth of around 2,000 meters. The Payara field is expected to break even at $32 per barrel, highlighting the operations’ considerable profitability in an environment where Brent is selling for over $85 per barrel.

More importantly, a combination of low breakeven prices for the oilfields in the Stabroek Block and a very favorable production sharing agreement with Guyana’s government, with a low royalty rate and the means to recover development costs, makes Guyana a highly profitable jurisdiction for Exxon.

Chevron Corp. (NYSE:CVX) comes in just above Shell as the world’s second-largest oil and gas company by market cap. Chevron is also betting big on Africa, particularly Nigeria and Angola. Not only is Chevron looking for riches in Africa, but it is also deep in Iraq’s oil industry, as well.

The newly resuscitated Iraq National Oil Company (INOC) has been authorised by the government in Baghdad to directly negotiate with U.S. oil giant, Chevron, for it to develop the long-delayed Nasiriyah oil field in the southern DhiQar province, according to several domestic news sources.

The idea of developing the 4.36 billion-barrel Nasiriyah oilfield has been mooted by a rapid succession of governments in Iraq since it was discovered by INOC in 1975. The original plan to develop the field on a standalone basis was shelved in the lead-up to the Iran-Iraq war that began in 1980 and lasted until 1988. The field eventually came on-stream in 2009 and was listed on the 2009-2010 fast-track development plan, which aimed to raise its output to at least 50,000 bpd in the first phase.

ConocoPhillips (NYSE:COP) is dedicated to working with others in industry and government to provide responsible development of resources while minimizing environmental impact. ConocoPhillips also strives to make sure their employees feel valued as they work towards success together.

ConocoPhillips' CEO Ryan Lance is bullish on the price of oil, the executive said on Monday at the Argus Americas Crude Summit in Houston.

Lance further expressed his view that the U.S. oil industry is poised for even more consolidation in an effort to bring down costs—costs which the majority of U.S. oil and gas companies see as rising as much as 10%, according to the latest Dallas Fed Survey conducted in December.

Lance said that the consolidation drive, however, doesn't mean that small independents are going to disappear. For the United States, this is good news, because in that same Dallas Fed Survey from December, it was mostly the small independent firms that had plans to raise crude oil production.

Cheniere Energy (NYSE:LNG) is an energy company that specializes in liquefied natural gas (LNG) and Liquefied Natural Gas production. The company has a number of plants, pipelines, and storage facilities across the United States as well as a global presence in Australia, Qatar, Nigeria, Canada, and Trinidad & Tobago. With demand for LNG increasing all over the world due to its role as a safer alternative to coal and oil-based fuel sources such as gasoline or diesel fuel Cheniere Energy is poised for growth over the next few years.

With the global shift towards cleaner energy sources in full swing, LNG and natural gas bring the benefits of being the cleanest-burning hydrocarbon, producing half the greenhouse gas emissions and less than one-tenth of the air pollutants of coal. Consequently, LNG demand is expected to grow 3.4% per annum through 2035, with some 100 million metric tons of additional capacity required to meet both demand growth and decline from existing projects. Natural gas use in power generation capacity is expected to grow by an additional 300 GW by 2040, equivalent to 300 million tonnes of LNG, with the majority of that demand coming from Asia, especially China, India, and other Southeast Asia countries. And that’s great news for Cheniere Energy.

Continental Resources (NYSE:CLR), the shale driller owned by one of the richest and most prominent shale wildcatters, Harold Hamm, has reported strong Q3 numbers that, nevertheless, failed to meet Wall Street's expectations.

Continental Resources has reported Q3 revenue of $1.34B, good for 93.5% Y/Y growth but $70M below the Wall Street consensus. Adjusted net income clocked in at $437.2 MM while GAAP EPS of $1.01 missed by $0.20.

With oil prices consolidating above $80 per barrel, the majority of shale producers are solidly profitable, and many are returning excess cash to shareholders in the form of hiked dividends. Continental Resources has followed suit by hiking its dividend 33% to $0.20, but has also gone off the beaten path–the company is finally taking a stake in North America's biggest oil field.

Continental has announced plans to acquire 92,000 net acres in the Permian Basin from Pioneer Natural Resources Co. for $3.25 billion. The company will pay cash for the assets in the Delaware Basin, a subregion of the massive Permian

That marks natural gas/LNG as the only fossil fuel that will experience any kind of growth over the next two decades. Goldman sees a strong ramp in contracted U.S. LNG export capacity and solid exposure to spot pricing for remaining volume helping Cheniere record free-cash-flow growth of ~50% from 2021 levels. Indeed, LNG could record even stronger growth, with Woodmac saying adoption of carbon capture and storage (CCS) technology could massively boost the sector's green credentials at little extra cost.

Crescent Point Energy Corp. (NYSE:CPG) is an oil and gas company based in Calgary, Alberta. The Company's shares are traded on the Toronto Stock Exchange under the symbol CPG. Crescent Point holds interests in over one million net acres of petroleum and natural gas rights in Saskatchewan, Manitoba, North Dakota, Utah, Colorado and Montana.

Crescent Point Energy explores, develops, and produces light and medium crude oil and natural gas reserves in Western Canada and the United States. The company's crude oil and natural gas properties, and related assets are located in the provinces of Saskatchewan, Alberta, British Columbia, and Manitoba.

Crescent Point shares once traded above $45 per share and even paid out a generous dividend, compared to the current $5.15 share price.

Unfortunately, the 2014 oil price meltdown left the company battling plunging cash flows and high debt levels leading to heavy dividend cuts–and the shares have never fully recovered. Even after this year's 120% gain, Crescent Point shares are trading 80% below 2014 levels.

Thankfully, the ongoing oil price rally has allowed Crescent Point to start generating healthy cash flows and make several strategic acquisitions. That said, this stock is likely to remain volatile, and any setbacks in the near future could send the shares crashing again.

Cenovus Energy (NYSE:CVE) is one of Canada's largest oil and gas producers. It was formed in 2001 following the merger of Petro-Canada and Pacific Petroleums. Cenovus Energy develops, produces, and markets crude oil, natural gas liquids, and natural gas in Canada, the United States and the Asia Pacific region. The company operates through Oil Sands, Conventional, and Refining and Marketing segments.

Cenovous Energy shares have shot to a 52-week high after J.P. Morgan upgraded the shares to Overweight from Neutral with a C$14.50 price target (45% potential upside), citing progress on execution of last year's takeover of Husky Energy (OTCPK:HUSKF). Cenovus shares remain undervalued, and with WTI now above $80/bbl for the first time in four years, the company is in a great position to generate enough free cash flow to buy back its ConocoPhillips' stake.

A subsidiary of Exxon Mobil Corporation, Imperial Oil Limited (NYSE:IMO; TSX:IMO) is a Canadian company that produces and refines petroleum products, including gasoline. It has operations in Canada, the United States and elsewhere. Imperial Oil is an integrated oil company that produces and sells crude oil and natural gas in Canada.

A few months ago, Imperial Oil announced plans to move ahead with the production of renewable diesel at a new complex at its Strathcona refinery in Alberta. The facility is expected to produce ~20K bbl/day of renewable diesel when it is completed in 2024, which the company says could reduce emissions in the Canadian transportation sector by 3M metric tons/year. The company says the renewable diesel will be produced from blue hydrogen, involving natural gas reforming accompanied by carbon capture and storage.

Canadian Natural Resources (TSX:CNQ) has been able to do what many of its Canadian counterparts haven’t been able to, keep its dividend intact after swinging to a loss for the first half of the COVID pandemic, while Canada's producers are scaling back production by around 1 million bpd amid low oil prices and demand. Though Canadian Natural Resources kept its dividend, it withdrew its production guidance for 2020, however. It also said it would curtail some production at high-cost conventional projects in North America and oil sands operations and carry out planned turnaround activities at oil sands projects in the second half of 2020.

Though there is a lot of negative press surrounding Canada’s oil sands, the industry is starting to clean up its act a bit. And Canadian Natural Resources is leading the charge. And if analysts are right about Canada’s comeback, Canadian Natural Resources could be in for a big year.

Though the Canadian energy giant has seen its stock price slump this year, it could provide a potential opportunity for investors as oil prices rebound. It is already up over 170% from its March 2020 lows, but it is just getting started. If oil prices continue to climb, it could be huge news for investors that held on.

TC Energy Corporation (TSX:TRP) is a Calgary-based energy giant. The company owns and operates energy infrastructure throughout North America. TC Energy is one of the continent’s largest providers of gas storage and owns and has interests in approximately 11,800 megawatts of power generation. It’s also one of the continent’s most important pipeline operators. With TC Energy’s massive influence throughout North America, it is no wonder that the company is among one of Canada’s strongest and well-known companies.

Like a number of its peers, one of TC Energy’s biggest challenges in recent years was grappling with the particularly difficult approval process for its Keystone Pipeline. But that’s all history now, and with the bounce back in oil and gas demand, TC Energy could stand to benefit. While TC Energy’s stock price has yet to recover from pre-pandemic levels, it is one of the few industry giants which has managed to keep high dividends rolling in. With quarterly payouts exceeding 6%, TC has remained appealing for investors in the industry.

Suncor Energy (TSX:SU) is another giant in Canada’s industry. It has set itself apart from some of its peers through a number of high-tech solutions for finding, pumping, storing, and delivering its resources. Not only is it big in the oil sector, but it is also a leader in renewable energy. Recently, the company invested $300 million in a wind farm located in Alberta, showing that it is committed to reducing its carbon footprint.

Now that oil prices are finally recovering, giants like Suncor looking to capitalize. While many of the oil majors have given up on oil sands production – those who focus on technological advancements in the area have a great long-term outlook. And that upside is further amplified by the fact that it is currently looking particularly under-valued compared to its peers, especially as lithium, which is present in Canada’s oil sands, becomes an even more desirable commodity.

By. James Stafford

Provided Content: Content provided by Baystreet. The Globe and Mail was not involved, and material was not reviewed prior to publication.